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Fourth EU Money Laundering Directive Timeline and Key Changes

Calendar

HM Treasury Guidance finalised: Early 2017

 Came into effect: 26 June 2017

Introduction

The European Union’s Fourth Anti-Money Laundering Directive (4MLD) came into force on 26 June 2015. It required European member states to update their respective money laundering laws and transpose the new requirements into local law by 26 June 2017.

The directive included some fundamental changes to the anti-money laundering procedures at law firms, including changes to customer due diligence (CDD), a central register for beneficial owners and a focus on risk assessments.

CDD

Simplified CDD is no longer be applicable in most circumstances. All transactions/clients require a degree of risk assessment to demonstrate that it presents a lower degree of risk and requires sufficient ongoing monitoring. There is essentially no blanket exemption from CDD. 4MLD updates the current list of circumstances where simplified customer due diligence would most likely apply and removes financial institutions which are themselves subject to AML/CTF regulation, listed companies and domestic public authorities from the categories of clients to be regarded as posing a lower risk. Such institutions now need to assess and make a decision as to who is of lower risk taking industry guidance into account. Before applying the simplified measures, they must consult the lower risk situations set out in Annex II of the Directive.

Transactions and relationships where enhanced due diligence (higher risk) are required include those involving asset holding vehicles and cash-intensive businesses, those where unusual or apparently unnecessarily complex ownership structures are in place and those associated with “higher risk” jurisdictions. They must consult the factors listed in Annex III of the Directive which include higher risk factors.

Beneficial Ownership

Member States need to ensure that corporate and other legal entities incorporated within their territory are required to obtain and hold adequate, accurate and current information on their beneficial ownership, including the details of the beneficial interests held. Such information must be held on a central register accessible to competent authorities. The scope of the Directive is broad in that the requirements apply to trusts and other legal entities rather than just companies.

PEPs

The definition of PEPs has been widened to include domestic individuals occupying prominent public positions, in addition to those from abroad and EDD will always apply.

Tax crimes

4MLD includes tax crimes as a predicate offence for money laundering for the first time in the EU. Tax crimes have long been predicate offences in the UK, though this is not the case in many other jurisdictions.

One-Off Transactions

Traders in high value goods must undertake customer due diligence when dealing with cash transactions of EUR 10,000 or more (decrease from EUR15, 000).

Gambling

The requirement for certain entities to carry out CDD has increased (e.g. from just casinos across the entire gambling sector and for high value goods traders). Obligation for providers of gambling services posing higher risks to apply customer due diligence measures for single transactions amounting to EUR 2,000 or more.

National Risk Assessments

Member states are required to carry out a national risk assessment of its exposure to money laundering and terrorist financing. Risk assessments must be documented, kept up to date and made available to the competent authorities and to each other member state.

Other money laundering news on the horizon

  • The Home Office is reviewing its Suspicious Activity Reports (SARs) regime and an action plan is expected soon.
  • FATF mutual evaluation expected in March/April 2018.

Reference

Deloitte, “The Fourth Anti-Money Laundering Directive” (2015)

European Commission, Press Release, 5 July 2016, “Commission strengthens transparency rules to tackle terrorism financing, tax avoidance and money laundering”

European Commission, Fact Sheet, “Questions and Answers: Anti-Money Laundering Directive”, 5 July 2016

Financial Conduct Authority, “Examining the future of anti-money laundering regulations, 10 December 2015

Osborne Clarke, “UK Regulatory Timeline”, April 2016